Sleep Country Canada (TSE: ZZZ), a retailer of mattresses and other sleep products, recently reported its Q3-2022 earnings results. ZZZ’s results missed both revenue and earnings-per-share (EPS) expectations. This is unlike the company, as it has beaten estimates every single quarter since missing in Q3 2019.
Sleep Country’s revenue fell to C$251 million (an 8.3% year-over-year decline), which missed expectations of C$268.24 million. Notably, Sleep Country’s same-store sales declined 11.1%.
Additionally, its adjusted diluted earnings per share were C$0.89, less than the C$0.97 consensus estimate, falling almost 17% year-over-year. Also, the company’s operating EBITDA margin was 26.1% compared to 26.9% last year, while operating EBITDA fell 10.9% to C$65.6 million, but its gross profit margin increased by 100 basis points, nonetheless. Regarding cash flow from operations for the quarter, which we manually calculated as the company didn’t explicitly mention it, it came out to C$73 million, lower than the C$87.5 million recorded last year.
Lastly, in Q3, Sleep Country bought back C$13.8 million worth of its shares, representing 1.8% of its market cap — not bad for just one quarter. Stewart Schaefer, President and CEO of Sleep Country, stated, “In Q3, we saw the sentiment in consumer spending change rapidly as the quarter progressed. Despite a decline in Revenues due to consumer uncertainty fueled by rising interest rates and concern of a possible recession, we are very proud of our sustained growth in market share that we have achieved over the past three years.”
While the company saw year-over-year declines, its figures are higher on a two-year basis, which is encouraging for longer-term investors. For instance, its two-year stacked same-store sales growth rate is 25.1%.
Is Sleep Country Stock a Buy, According to Analysts?
Sleep Country stock sports a Moderate Buy consensus rating based on three Buys and two Holds assigned in the past three months. The average Sleep Country price target of C$31.60 implies 49.1% upside potential.
Conclusion: Sleep Country’s Results Could Have Been Better
Sleep Country missed on both earnings and revenue estimates due to economic troubles. As we are investors in ZZZ stock, we’re slightly disappointed with the results, so we imagine that many investors feel the same. Nonetheless, the company is still operating very profitably in a tough environment, which is impressive in its own way. Sleep Country looks well-positioned to navigate through a potential recession and come out stronger on the other end.
